A Review of the Civil Service Grading and Pay System
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A Review of the Civil Service
Grading and Pay
SystemCPMR Discussion Paper
38
A Review of the Civil Service
Grading and Pay
System
Joanna O’RiordanFirst published in 2008 by the Institute of Public Administration 57-61 Lansdowne Road Dublin 4 Ireland in association with The Committee for Public Management Research www.ipa.ie © 2008 with the Institute of Public Administration All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means, electronic or mechanical, including photocopying, recording or any information storage and retrieval system, without permission in writing from the publisher. British Library Cataloguing in Publication Data A catalogue record for this book is available from the British Library. ISBN: 978-1-904541-68-4 ISSN: 1393-6190 Cover design by Creative Inputs, Dublin Typeset by the Institute of Public Administration Printed by ColourBooks Ltd, Dublin
CONTENTS
Foreword vii
Executive Summary ix
Chapter 1: Introduction 1
1.1 Introduction 1
1.2 Research Background 1
1.3 Grading and pay structures 2
1.4 Study terms of reference 3
1.5 Report structure 3
Chapter 2: The Approach to Pay and Grading in the Irish
Civil Service 5
2.1 Introduction 5
2.2 The civil service grading system 5
2.3 The civil service pay determination system 6
2.4 Pay and perfromance 7
2.5 Future trends 10
Chapter 3: A Review of Grading and Pay Reform
Initiatives 13
3.1 Introduction 13
3.2 Drivers of change in the private sector 13
3.3 Core characteristics of the private sector model 14
3.4 Job evaluation 17
3.5 Types of grade and pay structures 19
3.6 Implementing a new grading structure 28
Chapter 4: Public Sector Experiences of Grading and Pay
Reform 31
4.1 Introduction 31
4.2 OECD experiences 31
4.3 Evolving approaches to HRM in the UK civil service 36
4.4 Case-study: Implementing a new pay and grading system
at Cornwall County Council, United Kingdom (IDS, 2006) 41
vChapter 5: Summary and Conclusions 45
5.1 Introduction 45
5.2 Summary of findings and conclusions 45
5.3 Implications for the Irish civil service 49
5.4 Ways forward 54
Appendix 1: Types of Job Evaluation 56
Appendix 2: Comparisons of grade and pay structures 60
Appendix 3: Steps for introducing a new grade and pay
structures 61
Notes 62
References 64
viFOREWORD
This paper is the thirty-eighth in a series undertaken by the
Committee for Public Management Research. The
Committee is developing a comprehensive programme of
research designed to serve the needs of the future
developments of the Irish public service. Committee
members come from the following eight departments:
Finance; Environment, Heritage and Local Government;
Health and Children; Taoiseach; Transport;
Communications, Energy and Natural Resources; Social
and Family Affairs; Office of the Revenue Commissioners
and also from Trinity College Dublin, University College
Dublin and the Institute of Public Administration.
This series aims to prompt discussion and debate on
topical issues of particular interest or concern. The papers
may outline experience, both national and international, in
dealing with a particular issue. Or they may be more
conceptual in nature, prompting the development of new
ideas on public management issues. They are not intended
to set out any official position on the topic under scrutiny.
Rather, the intention is to identify current thinking and
best practice.
We would very much welcome comments on this paper
and on public management research more generally. To
ensure that the discussion papers and wider research
programme of the Committee for Public Management
Research are relevant to managers and staff, we need to
hear from you. What do you think of the issues being
raised? Are there other topics you would like to see
researched?
Research into the problems, solutions and successes of
public management processes and the way organisations
can best adapt in a changing environment has much to
contribute to good management, and is a vital element in
the public service renewal process. The Committee for
Public Management Research intends to provide a service to
viipeople working in public organisations by enhancing the
knowledge base on public management issues.
Jim Duffy, Chair
Committee for Public Management Research
Department of Finance
For further information or to pass on any comments please
contact:
Pat Hickson
Secretary
Committee for Public Management Research
Department of Finance
Lansdowne House
Lansdowne Road
Dublin 4
Phone: (+353) 1 676 7571; Fax: (+353) 1 668 2182
E-mail: hicksonp@cmod.finance.irlgov.ie
General information on the activities of the Committee for
Public Management Research, including this paper and
others in the series, can be found on its website:
www.cpmr.gov.ie; information on Institute of Public
Administration research in progress can be found at
www.ipa.ie.
viiiEXECUTIVE SUMMARY
Background
The Irish civil service has a common pay and grading
system. This means that all departments and offices have
the same approach to grading, with pay levels in respect of
each grade determined centrally. The traditional rationale
for these arrangements is to promote and preserve an
independent and impartial civil service. However, a
fundamental question for HR policy is the extent to which
they are still relevant and desirable. This issue was noted in
Towards 2016 (2006), the national social partnership
agreement, which states (Para. 29.6) that ‘the parties agree
to engage in discussions to identify and explore the full
range of issues involved in rationalising grade structures’.
Grading and pay structures
Grade structures are needed to provide a logically designed
framework within which an organisation’s pay policies can
be implemented. Structures enable an organisation to
determine where jobs should be placed in a hierarchy, to
define pay levels and the scope for pay progression and
provide the basis on which relativities can be managed,
equal pay can be achieved and the processes of monitoring
and controlling the implementation of pay practices can
take place. A grade and pay structure is also a medium
through which the organisation can communicate the
career and pay opportunities available to employees
(Armstrong and Murlis, 2005, p.196).
What clearly emerges from a review of the literature in
this area is that no perfect framework has been developed
within which an organisation’s pay policies can be
managed. In many organisations broad graded structures
(8-12 grades) have come to the fore as the most pragmatic
option. However, more pertinent than the number of grades
is the manner in which a grade structure is implemented.
In particular it is critical to ensure that grades are well
defined, thereby making it easier to differentiate between
them, and to evaluate jobs carefully to ensure the best fit
between individual role profiles and grades.
ixThe Irish system
All organisations in the Irish civil service have the same
grades, to which in general the same pay ranges and
incremental levels apply. Pay ranges are determined
centrally and there is a high level of transparency in
relation to these. Many departments also employ what are
referred to as professional and technical staff (e.g.
economists, vets, agriculture inspectors etc). The salaries of
these ‘specialists’ (as distinct from the ‘generalists’
appointed to general service grades) are also determined
centrally.
This system can be described as a ‘narrow-graded’
structure. It consists of a sequence of job grades, sixteen in
the case of the general service, into which jobs of broadly
equivalent value are placed. Employees are positioned at an
appropriate point (their incremental level) within a salary
range where the maximum point is around 30-50 per cent
higher than the minimum point.
Within this kind of system, a large number of grades
are required in order to accommodate a wide range of
salaries. Critically, it is also a system that reflects the fact
that promotion to a higher grade is almost the only form of
reward for good performance.
Summary of findings
The civil service is facing ever-increasing demands, to
produce more and better results, to deliver higher levels of
efficiency and effectiveness and meet customer
expectations. The way it organises, manages and rewards
its staff is critical in this regard. We therefore need to ask
whether current grading and pay procedures are optimal.
In respect of grading, key questions to ask include, how
are jobs evaluated; how is internal equity defined; are there
reasons to preserve the existing hierarchical structure? It
would appear that job evaluation − the systematic process
for defining the relative worth or size of jobs in an
organisation − is done in a largely ad-hoc way in the civil
service. While the number of grades (sixteen) does allow for
distinctions to be made between different levels of
responsibility, it is questionable whether there is an
adequate, objective basis for categorising jobs within the
grade structure.
xFurthermore, the evidence in this paper suggests that
while no grading system is perfect, narrow-grade structures
like the Irish civil service model are likely to have
disadvantages emanating from their excessively
hierarchical nature. Firstly, it can lead to excessive
bureaucracy, with work being checked and rechecked by
staff at successive grades. Secondly, narrow grade
structures reinforce the importance of promotion as the
only means of progression. This can lead to constant
pressure for upgrading, in some cases without justification
(grade-drift), and also reduced emphasis on other, perhaps
lateral, developmental opportunities.
The implication for the Irish civil service is that some
amalgamation of grades, both within the general service
grade structure and also between professional and general
service grades might be considered. However, this would
require extensive consultation, in particular with the civil
service unions who would have concerns about any moves
that would either result in a loss of members to another
union or the possibility of diminished promotion
opportunities for their members.
In respect of pay, the pertinent questions to emerge in
this report are, what does the Irish civil service pay for −
individual performance, team performance or tenure; can
we afford to ignore performance; what is the relative
importance of the labour market and prevailing pay levels?
Broadly speaking the Irish civil service pays on the
basis of tenure. In theory salary increments are linked to
satisfactory performance but in practice only in very rare
cases are increases withheld.
The principal alternative available is to pay, at least in
part, on the basis of performance. However, the evidence in
this report suggests that while performance related pay
(PRP) can be justified on ideological grounds (there should
be a direct link between performance and reward) or as a
catalyst for other changes (for example, its introduction can
lead to an improved and stronger focus on effective
performance management and appraisal processes), it does
not necessarily lead to higher levels of performance.
Other HR practices have been shown to have a more
significant impact on performance including, opportunities
for career advancement, having influence on one’s job,
opportunities for training, working in teams, work-life
xibalance and having managers who are good at leadership.
For the Irish civil service, it would therefore seem desirable
that resources are dedicated towards enhancing these
aspects of HR policy rather than PRP.
Labour market trends and private sector pay rates are
reviewed by the Public Service Benchmarking Body. The
report of the 2002 Body indicated that it had collected data
in respect of over 3,500 jobs in the private sector. However,
detailed information in respect of the nature of these
positions was not made available. In this regard it has been
announced that the current Benchmarking Body, whose
report is due in the near future, has updated its processes.
This is important, as a central feature of job evaluation
should be a high degree of clarity and transparency in
respect of job comparisons and relativities.
Ways forward
The conclusion of this research is that fundamental
changes in respect of the centralised nature of the grading
and pay system are not warranted. However, some
reduction in the overall number of grades and greater
integration of general and departmental grades should be
on the agenda. Reform in this area would mitigate against
the disadvantages of a very hierarchical system, afford
organisations greater flexibility and provide many staff with
increased career opportunities.
Performance related pay is not regarded as desirable.
Instead resources should be dedicated towards initiatives
that research now shows have a greater impact on
performance and motivation levels.
The commitment in Towards 2016 in respect of the civil
service grading system states that ‘the parties agree to
engage in discussions to identify and explore the full range
of issues involved in rationalising the grading system’.
There are several reasons why such engagement would be
timely including, the changing and ageing profile of the civil
service, the government’s decentralisation initiative and the
increasing demands on the civil service to deliver a better
and more effective service. It is also the case that the civil
service grading system has remained largely unaltered
during over a decade of public service modernisation. While
change for change’s sake is not to be recommended, an
organisation’s grading and pay structure is a very
xiisignificant expression of its culture and values. It is
therefore important that its impact is monitored and
reviewed on an ongoing basis.
This requires consultation with a wide number of
stakeholders including, public representatives, trade
unions, partnership groupings, senior management and
staff in general, who would expect to have their views taken
into consideration.
xiii1
Introduction
1.1 Introduction
The Department of Finance Censis database of civil service
employment (2003)1 indicates that the almost 33,000 civil
service employees are spread over 726 different job roles
and are incorporated into the following categories: general
civil servants, industrial grades, professional and technical
grades, and services staff. Administering this system is a
major bureaucratic exercise and involves considerable staff
resources.
In addition, the civil service has a common pay and
grading system, reflecting the traditional public service
model. This implies that all departments and offices have
the same hierarchical approach to grading, with pay levels
in respect of each grade determined centrally.
The traditional rationale for these arrangements was to
promote and preserve an independent and impartial civil
service. However, a fundamental question for HR policy is
the extent to which they are still relevant and desirable.
1.2 Research background
HR reform across the OECD, at its core, has been based
around the concept of ‘individualisation’. In other words,
evolving from a situation whereby government employees
are seen as part of a collective entity or grade classification
to one where staff are managed as individuals, according to
the changing needs of the organisation and the
performance of individuals.
The implementation of this concept has had a wide-
ranging impact. This includes reforms in respect of methods
of entry into the civil service, employment tenure,
promotion, pay, pensions, industrial relations
12 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
arrangements and methods of dismissal. This evolution
towards practices more typical of the private sector is
sometimes represented as switching from a ‘career-based’
to a ‘position-based’ system.
The Irish civil service has gone some way towards
greater individualisation in respect of terms and conditions
of employment, principally through the introduction of the
Performance Management and Development System
(PMDS). It identifies the roles and responsibilities of
individuals in respect of the work of their department and
also provides a forum through which individual
performance can be managed.
However, a ‘career-based’ system still applies. Civil
servants are usually hired at the beginning of their career
and typically remain in public service throughout their
working life. Promotion is linked to a system of grades
rather than to specific positions. Lastly, there are limited
possibilities for entering the civil service at mid-career.
1.3 Grading and pay structures
As noted above, this paper will focus specifically on the
appropriateness of the current grading and pay structures.
Grade structures first and foremost provide the framework
for managing pay. However, they are also used as a process
for mapping career paths without any direct reference to the
pay implications
A grade structure consists of a sequence or hierarchy of
grades, bands or levels into which groups of jobs that are
broadly comparable in size are placed. Traditionally,
organisations had one, single structure with a sequence of
perhaps eight to twelve narrow grades. A grade structure
becomes a pay structure when pay ranges or brackets are
defined for each level.
Grade and pay structures are needed to provide a
logically designed framework within which an
organisation’s pay policies can be implemented. They
enable the organisation to determine where jobs should beINTRODUCTION 3
placed in a hierarchy. They define pay levels and the scope
for pay progression. They provide the basis on which
relativities can be managed, equal pay can be achieved and
the processes of monitoring and controlling the
implementation of pay practices can take place. A grade and
pay structure is also a medium through which the
organisation can communicate the career and pay
opportunities available to employees (Armstrong and
Murlis, 2005, p.196).
1.4 Study terms of reference
This study is being initiated to review the approach to
grading and pay structures in the Irish civil service. It is
anticipated that the findings of the research will inform
future debate in relation to the Irish system. Consequently,
the following terms of reference were proposed:
l An overview of the current grading and pay system in
the Irish civil service.
l A review of the literature in respect of job evaluation,
grading and pay structures.
l An overview of reforms in OECD countries and a
particular focus on the experiences of the UK civil
service which has implemented significant reforms in
relation to pay and grading.
l A review of lessons learnt and recommendations in
respect of how experiences elsewhere might inform
debate in relation to the reform of the Irish civil service
grading and pay structures. Particular focus will be
given to the possible impact of various arrangements on
individual and organisation performance.
1.5 Report structure
Following this introductory section, the layout of this report
is as follows.
Chapter 2 provides an overview of current civil service4 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
arrangements and reviews the extent to which pay and
performance have been linked. It concludes by noting that
Towards 2016 (2006), the most recent national social
partnership agreement, proposes discussions in relation to
the possible future rationalisation of civil service grading
structures.
Chapter 3 provides an overview of recent initiatives in
respect of grading and pay structures. Drawing on the
literature in the area, the concept of job evaluation is
discussed and different approaches to grading are reviewed.
The final section considers some of the challenges involved
in implementing reforms in this area.
Chapter 4 provides details of the trend across OECD
countries towards treating civil service employees as
individuals rather than part of a collective entity. Particular
attention is paid to the experiences of the UK civil service
where a centralised approach to pay, grading and other HR
policies was replaced by a decentralised regime, whereby
departments have autonomy to establish the arrangements
most suited to their needs. A case-study of grading and pay
systems reform at Cornwall County Council is also
included.
Chapter 5 provides a review of findings and conclusions
and also indicates possible ways forward in reviewing the
Irish civil service pay and grading system.2
The Approach to Pay and Grading
in the Irish Civil Service
2.1 Introduction
This chapter reviews the approach to pay and grading in the
Irish civil service. Section 2.2 provides information in
relation to the organisation of civil service grades, while
Section 2.3 provides an overview of the pay determination
system. Since the late 1980s pay bargaining for the public
sector has been conducted centrally with standard pay
agreements applying to all but top-level civil servants. A
performance-review aspect has been incorporated into
these agreements since 2000. However, incidences of
individual performance related pay remain rare. These
developments are discussed in Section 2.4. Lastly, Section
2.5 considers possible future directions indicated in
Towards 2016, the new social partnership agreement,
ratified in August 2006, and a HR discussion paper being
developed by the Department of Finance.
2.2 The civil service grading system
The Irish civil service has a common pay and grading
system. This means that all organisations have the same
grades, to which in general the same pay ranges and
incremental levels apply. Pay ranges are determined
centrally and there is a high level of transparency in
relation to these. Many departments also employ
professional and technical staff (e.g. economists, vets,
agriculture inspectors etc) referred to as specialists.
Salaries for these employees are also determined centrally.
This system can be described as a ‘narrow-graded’
structure. It consists of a sequence of job grades, sixteen in
56 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
the case of the general service2, into which jobs of broadly
equivalent value are placed. Employees are positioned at an
appropriate point (their incremental level) within a salary
range where the maximum point is around 30-50 per cent
higher than the minimum point.
Within this kind of system, a large number of grades are
required in order to accommodate a wide range of salaries.
Critically, it is also a system that reflects the fact that
promotion to a higher grade is almost the only form of
reward for good performance in the Irish civil service.
2.3 The civil service pay determination system
Pay bargaining in the public and private sector has been
conducted centrally since 1987. Successive three-yearly
national agreements on pay have been negotiated between
national employer groupings and the Irish Congress of
Trade Unions. The major factors considered in determining
pay increases during the negotiation of the national
agreements are the competitiveness requirements of the
economy, the state of Exchequer finances including the
prospects for a trade-off between budgetary concessions on
personal taxation and the level of pay settlements, growth
prospects and the projected rate of inflation.
Civil servants are paid according to a salary scale. A pay
spine is the technical term given to the series of incremental
pay points covering all jobs. Grades are superimposed onto
the spine. Basic salary in most cases represent 100 per
cent of total pay, though allowances for the performance of
higher duties are occasionally paid if these duties are to be
carried out on a prolonged basis. Salary increments are
generally paid annually providing the employee’s
performance has been satisfactory
The Department of Finance controls the administrative
budget and staff numbers of all central departments and
offices. The administrative budget, which is negotiated
annually, includes pay and remuneration, day-to-day office
management costs and other headings such as travel,THE APPROACH TO PAY AND GRADING IN THE IRISH CIVIL SERVICE 7
expenses and consultancy services. The budget attributed
to each organisation is determined by the budget of the
previous year, general pay increases agreed at central level,
planned productivity gains and changes in numbers where
an increase has been sanctioned by the Department of
Finance
2.4 Pay and performance
Pay awards in the public sector have been linked to greater
efficiency and effectiveness, industrial peace and
modernisation initiatives under the terms of each of the
national social partnership agreements. However, under the
Programme for Prosperity and Fairness (2000), this was
made more explicit, with certain pay increases linked to the
achievement of sectoral targets in respect of public service
modernisation. Quality assurance groups (QAGs) were
established to oversee and independently assess progress.
If not satisfied with progress in any one organisation the
QAG may look for further clarification and information.
Linking pay to performance, and the validation process
involved in assessing this, were further developed under the
public service benchmarking process and in Sustaining
Progress (2003), which states that public sector pay awards
are
…dependent in the case of each sector, organisation
and grade, on verification of satisfactory achievement of
the provision on cooperation with flexibility and ongoing
change, satisfactory implementation of the agenda for
modernisation…and the maintenance of stable
industrial relations and the absence of industrial
action… (para. 26.1)
Performance Verification Groups (PVGs) were established
for the main sectors of the public service (the civil service,
local government, health, education, and justice and
equality) in order to oversee the process. PVGs have
independent chairs and equal numbers of management,8 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
union and independent members. Organisations are
required to submit progress reports in respect of
modernisation objectives and primarily on this basis the
PVG will make a recommendation in relation to whether or
not payment should be made.
In the vast majority of cases, the judgment of the PVGs
to date has been that progress has been sufficiently
satisfactory to merit payment of the salary increases.
However, there have been a number of instances where the
recommendation has been that payment should not be
awarded at the time of the assessments or where further
information has been sought. A comprehensive review of
the performance verification process was carried out by
Boyle (2006).
2.4.1 Individual performance management
In May 2000 the Performance Management and
Development System (PMDS) was introduced in the civil
service.3 The implementation of an effective process for
managing individual performance is central to the
achievement of the public service modernisation goals set
out in Delivering Better Government (1996) and subsequent
national social partnership agreements. The overarching
goal of PMDS is to contribute to the continuous
improvement in performance by all departments and
offices.
The first phase of PMDS involved the holding of annual
objective setting and review meetings between managers
and their staff. According to the evaluation of PMDS
conducted by Mercer Human Resource Consulting in 2004,
a majority of staff found the process useful, in particular
indicating that it had resulted in greater role clarity and
helped them understand better how their work contributed
to the overall objectives of their organisation. In addition, it
was agreed that PMDS had resulted in improved
communication between managers and staff in
organisations, leading to better overall planning andTHE APPROACH TO PAY AND GRADING IN THE IRISH CIVIL SERVICE 9
business performance.
The second phase of PMDS, negotiated during 2004/5,
involved reaching agreement between management and
unions on the development of an integrated PMDS model.4
It was regarded as critical to the effectiveness and
credibility of PMDS that it be linked to other HR processes,
including decisions on increments, promotion, higher
scales and other career assignments.
While payment of salary increments has in theory
always been linked to satisfactory performance, the new
PMDS model should make this more explicit as managers
will be required to rank employees according to a five point
rating scale. Only employees receiving a rank of 2 or over
will be entitled to their increment. It is further suggested
that in order to maintain the credibility of the rating system
it should reflect the full spectrum of performance typically
found in departments and offices. On this basis it is
suggested that the broad pattern of grades might be:
between 0-10 per cent of staff rated as 5; between 20-30 per
cent of staff rated as 4; between 40-60 per cent of staff 3;
between 10-20 per cent of staff as 2; and between 0-10 per
cent of staff as 1. In addition it is indicated that only staff
receiving a rank of 3 or over in their most recent PMDS
review will be eligible to apply for promotion or higher scale
posts. These arrangements were to be implemented by
departments during 2007.
2.4.2 Merit awards
According to a Department of Finance provision,
departments may reward exceptional performance by civil
servants in grades below assistant secretary level by means
of ex-gratia payments or other awards provided the
expenditure involved can be met within a department’s
administrative budget allocation and does not exceed 0.2
per cent of payroll in any calendar year. The operation of
this scheme is entirely at the discretion of the secretary
general of each department and money has been10 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
distributed in different ways. While many departments have
used the resources to provide a gift for all staff, for example
at Christmas, or to hold a social event, a number of
organisations have used the fund to financially reward
exceptional performance.
Within the Department of Social and Family Affairs, a
partnership sub-committee makes a short-list of nominees,
with the final award recipients being chosen by a committee
comprising the secretary general, the partnership
committee chairperson and one other committee
representative. In the Department of Enterprise, Trade and
Employment, the secretary general can make exceptional
performance awards on foot of nominations at any stage in
the year. A similar arrangement applies in the Department
of Defence where managers (via the division’s assistant
secretary) make nominations to the secretary general in
respect of staff members who have performed exceptionally.
Typically, the secretary general accepts the nomination and
an award in the region of ¤500 is made. Lastly, within the
CSO, a portion of the merit pay budget is traditionally
distributed to all mangers to make small local level
performance awards (vouchers or lunches) at their own
discretion throughout the year.
2.5 Future trends
Towards 2016 (2006), the seventh national social
partnership agreement ratified in August 2006, continues
the process developed in previous agreements, of
establishing an agenda in relation to reform of HR
arrangements in the civil service. In particular, the
implementation of the new phase of PMDS, the impact of
the Civil Service Regulation (Amendment) Act 20055 and
the greater use of open recruitment at management grades
are highlighted. The agreement on open recruitment will
allow the civil service to fill approximately 20 per cent of
vacancies at principal officer, assistant principal officer,
higher executive officer and equivalent professional andTHE APPROACH TO PAY AND GRADING IN THE IRISH CIVIL SERVICE 11
technical grades from outside the service. This will enable
departments ‘to attract staff with the wide range of skills
and experience needed in a modern public administration’
(para. 29.3). In addition, a brief reference is made to the
rationalisation of grade structures (para. 29.6). It is stated
that ‘the parties agree to engage in discussions to identify
and explore the full range of issues involved in rationalising
grade structures’.
Some indications of possible future directions in this
regard are set out in a HR consultation paper developed by
the Department of Finance during 2006 and still under
review.6 Based on consultations across the civil service, the
paper makes three central suggestions in relation to
grading and pay.
l The common pay and grading system should be retained
at present.
The current system has a high level of support due to its
transparency and objectivity. For each civil service
organisation to devise its own system would be extremely
resource intensive and demanding to implement. However,
respondents did desire greater flexibility in relation to the
recruitment of highly skilled or experienced new recruits
into the general service and the possibility of rewarding
exceptional performance.
l The number of specialist or departmental grades should
be reduced
Reducing the number of departmental grades was perceived
as desirable as it would reduce the administrative burden,
in terms of pay-roll, while also providing for greater levels of
mobility.
In this regard the successful integration of Customs and
Excise staff with general Revenue grades provides a good
example. This initiative has proven mutually beneficial to
management, who are given greater flexibility in relation to
the deployment of staff resources, and staff, for whom
mobility, transfer and promotion opportunities are12 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
enhanced.
l Some simplification of the grading structure
It was suggested that some reduction in the number of
grades would have several advantages. This could be
achieved through the amalgamation of certain grades
(examples might be staff officers with executive officers or
higher executive officers with assistant principals). Possible
changes of this nature would simplify the increasingly
burdensome tasks of payroll and pension administration.
Secondly, it would reduce current levels of bureaucracy
(e.g. the same job being done several times due to different
levels checking and re-checking certain tasks).
Furthermore, it would be hoped that a more streamlined
structure would lead to improved levels of performance. A
very hierarchical organisation can lead to an emphasis on
grades, rather than ability and may undermine initiative
and potential. In addition, and typical in a union
environment, multiple grade structures can lead to over
strict demarcation in respect of the tasks that can be
carried out by different grades.
These ideas are revisited in the final chapter of this
report in the context of the research findings.3
A Review of Grading and Pay Reform
Initiatives
3.1 Introduction
The purpose of this chapter is to explore changes in private
sector grading and pay structures as documented in the
human resource (HR) literature. The first part of the chapter
details the motivation for reforms (section 2.2) and the core
characteristics of the private sector model (section 2.3). The
second part of the chapter describes in greater detail the
concept of job evaluation (section 2.4), while section 2.5
reviews different types of grade/pay structures. Section 2.6
concludes by noting some lessons from private sector
practice.
3.2 Drivers of change in the private sector
Interest in more innovative forms of grade and pay
structure emerged in the 1980s, though it was primarily in
the 1990s that significant numbers of private sector
companies reformed their grade and pay structures.
Research carried out on behalf of the Chartered Institute of
Personnel and Development in 2000 found that only 10 per
cent of organisations surveyed retained traditional multiple
grade structures (Armstrong, 2000).
A number of factors contributed to the high levels of
interest in new grading and pay models (Risher, 1994).
Principal among these were economic and financial
pressures and a desire to increase productivity. Linking pay
to performance, a common feature of many new
programmes, was believed to have a high motivational
value, while also being perceived as a means of keeping
payroll costs under control. In many organisations, where
business need − the so-called ‘bottom-line’ − was used to
justify quite significant changes, it was hoped that the new
1314 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
structures would result in employees in effect earning their
pay increases through higher productivity.
A further driver was the emergence of the concept of
quality management and related changes in the way work
is organised and managed. Total Quality Management
advocates were very critical of traditional appraisal and pay
systems and this prompted many companies to consider
new approaches. However, despite the increasing reliance
on teams and team performance, few organisations’ policies
have evolved to the extent that they reward on this basis
rather than for individual performance.
Finally, ‘pervasive organisation changes have
introduced a compelling need for policies and practices that
are more flexible and responsive to the needs of the
business unit’ (Risher, 2004, p.652). Hierarchical
organisation structures were rapidly disappearing and
within a new organisation environment greater flexibility
was required in respect of grade and pay structures.
3.3 Core characteristics of the private sector model
The specifics of new grading and pay structures in private
companies vary considerably. However, it is possible to note
a number of core characteristics of the private sector model.
l There is a shift from ‘paying the job’ to paying the person
Traditionally, the grade and salary attached to a job were
determined by its value, as defined in terms of duties and
responsibilities. HR personnel would make this assessment
and consequently assign the job to a given grade and salary
range. Such an approach had a number of shortcomings. It
was time consuming and demanding from an
administrative perspective as jobs had to be individually
evaluated; it was difficult to change job descriptions in line
with business needs and the focus on documented tasks
and responsibilities meant that employees could resist
requests to carry out other duties; lastly, the approach
emphasised the notion of hierarchy in organisations, whichA REVIEW OF GRADING AND PAY REFORM INITIATIVES 15
was frequently contrary to a reality of team based working.
The alternative, which is central to the new model, is to
base pay decisions on the value of the person. This is
sometimes referred to as skill or competency-based pay.
Essentially this sends a message that the more you can do
or the more you contribute to the organisation the more
value you have. This approach also assists employees to
identify what skills, knowledge and experience they need to
acquire in order to progress within the organisation. From
a management perspective, competency frameworks
effectively tie together core aspects of HR policy and support
a consistent and logical approach towards staffing
decisions, career management, performance appraisal and
development planning.
In addition, private corporations are increasingly
designing separate grading and pay practices for different
employee groups, for example graduates, employees with
high potential or those with highly sought after skills.
Organisations are trying to develop arrangements that ‘fit’
their business needs and culture rather than adopting ‘off
the shelf’ programmes.
l There is a shift towards de-layering organisations with a
significantly reduced number of grades
The traditional corporate structure involved a series of
overlapping grades and salary ranges into which jobs of
broadly equivalent value were placed. The maximum salary
for each grade was typically between 20 per cent and 50 per
cent above the minimum.7 The pay range provided scope for
progression, with perhaps eight or more points on the scale.
The advantages of these narrow-graded structures from
an employee’s perspective was that they were transparent,
while from managements’ point of view they provided a
framework for managing relativities. However, for many
organisations multiple grades, possibly twenty plus, meant
constant pressure for re-grading, leading to grade and
salary drift. Hierarchical systems were also seen to reinforce16 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
the importance of promotion as a means of progression,
which may run counter to the needs of the organisation for
flexibility and the need to move people laterally to enhance
their skills and capability (Armstrong and Murlis, 2005).
In order to avoid these significant shortcomings many
organisations introduced banded structures. This involved
all jobs being re-categorised into perhaps five to six bands
(for example, director, manager, senior specialist, specialist,
support) with perhaps as much as 100 per cent difference
between the minimum and maximum salary paid within the
band.
l A search for new, more effective methods of appraising
performance
The move away from traditional pay systems with automatic
pay increments was associated with an increased emphasis
on performance management. However, in many instances
appraisal systems focused on last year’s performance and
were little more than a ‘fill out the form’ exercise and
consequently of little benefit to the employee or
organisation. More innovative systems involving ‘180-
degree’ reviews (where employees have the opportunity to
comment confidentially on their manager’s performance)
and ‘360-degree’ feed-back (might also include peers,
subordinates and internal and external customers) have
generally proven more effective. Similarly, pro-active and
forward-looking performance management programmes
that result in meaningful objective setting and
performance/career development conversations between
managers and their staff are more effective.
l A shift in responsibility away from HR/personnel
departments to line managers
The concept of strategic HR − that HR policies and
procedures were not developed in isolation but rather in the
context of business objectives8 − was a dominant theme in
private companies at the end of the 1990s and start of the
2000s. One consequence of developing a more strategicA REVIEW OF GRADING AND PAY REFORM INITIATIVES 17
approach to HR is the increasing emphasis on line
managers being held accountable for the performance and
development of their staff. In some organisations this
extends to the determination of appropriate salary ranges,
starting salaries and merit increases.
3.4 Job evaluation
Job evaluation underpins judgments on appropriate
grading and therefore pay decisions. It ‘is a systematic
process for defining the relative worth or size of jobs within
an organisation in order to establish internal relativities
and provide the basis for designing an equitable grade and
pay structure’ (Armstrong and Murlis, 2005, p.112).
Initially emerging out of the need to guarantee equal pay
for equal work, particularly for female employees, interest
in job evaluation has increased generally, in line with a
growing awareness of its benefits. Armstrong and Murlis
(2005) summarise these as:
l assisting organisations to meet ethical and legal ‘equal
pay for work of equal value’ obligations
l establishing the relative value or size of jobs, i.e.
internal relativities based on fair, sound and consistent
judgments
l producing the information required to design and
maintain equitable and defensible grade and pay
structures
l providing as objective as possible a basis for grading
jobs within a grade structure, thus enabling consistent
decisions to be made about job grading
l enabling sound market comparisons with jobs or roles
of equivalent complexity or size.
The conventional view of job evaluation is that it is
concerned with the job not the person. In other words, the18 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
only concern is the content of the job in terms of the
demands made on the job-holder. The main perceived
benefit of properly devised and applied job evaluation is
that it allows for consistent decisions to be made on job
grades and rates of pay. In addition, such decisions are far
more likely to be accepted by employees as fair and
equitable as compared to informal, ad-hoc approaches.
However, criticisms of the concept have also been made
(Gunnigle et al, 2006, p.173). It has been suggested that job
evaluation leads to a situation whereby the job is perceived
as more important than the person in the job and more
particularly their performance. This can lead to excessive
weight being given to promotion within environments where
opportunities in this regard may be limited. Related to this
is the inability of many formal job evaluation schemes to
effectively address the issue of knowledge workers whose
performance is based on specialised applied learning rather
than on general skills and, also, its inability to keep pace
with ever changing roles which are a common feature of
many dynamic organisations.
There is also the possibility of schemes decaying
overtime through misuse. People learn to manipulate them
to achieve a higher grade and this leads to the phenomenon
known as ‘grade drift’ − re-gradings that are not justified by
a sufficiently significant increase in responsibility
(Armstrong and Murlis, 2005, p.127). Lastly, is the
fundamental problem of the possibility of error in the
human judgements that form a central part of the process.
Perhaps the biggest pitfall in this regard is making a priori
judgments, whereby decisions in relation to job evaluation
are influenced by preconceptions about relative worth.
However, not withstanding these potential shortcomings,
job evaluation is in a sense unavoidable. As Armstrong and
Murlis (2005) note, it could be claimed that every time a
decision is made on how to categorise a job or what it
should be paid, a form of job evaluation is required. ‘The
issue is how best to carry it out analytically, fairly,A REVIEW OF GRADING AND PAY REFORM INITIATIVES 19
systematically, consistently, transparently and, so far
as possible, objectively, without being bureaucratic,
inflexible or resource intensive’ (p.130). Using a tested and
relevant job evaluation scheme, monitoring and reviewing
its implementation on an ongoing basis and providing
appropriate training to all involved in the process can
enhance the process of designing grade structures, grading
jobs, managing relativities and ensuring that work of equal
value is paid equally.
3.4.1 Approaches to job evaluation
Approaches to job evaluation are commonly classified as
analytical or non-analytical. The former involves jobs being
broken down into a number of critical factors that are then
analysed and compared using a quantitative measure. It
involves making decisions about the value or size of jobs,
typically on the basis of the extent to which various defined
factors or characteristics (e.g. knowledge, initiative,
responsibility for people) are present in a job. The extent to
which they are present will indicate relative job value. Non-
analytical job evaluation represents more of a general
overview of the job as indicated by the role profile, without
consideration of the constituent parts (Gunnigle et al, 2006,
p.167).
Analytical job evaluation is generally seen as more
rigorous − the relative size or ‘value’ of jobs is determined on
the basis of factual evidence drawn from a structured
framework of criteria − it is therefore the standard of job
evaluation required for legal cases, for example, equal pay
claims. Appendix 1 gives examples of different types of
analytical and non-analytical schemes.
3.5 Types of grade and pay structures
The literature on grade and pay structures (Armstrong and
Murlis, 2005; Armstrong and Stephens, 2005; Armstrong
and Brown, 2001) identifies five general categories: narrow
graded, pay spines, broadbanded, career families and job20 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
families. These are discussed in this section.
3.5.1 Narrow graded structures
In the past the almost universal type of structure in the
private sector was the conventional, single-graded pay
structure (Figure 3.1). It consists of a sequence of job
grades, at minimum probably around eight, into which jobs
of broadly equivalent value are placed.
Figure 3.1: A Narrow Graded Pay Structure
€
Source: Armstrong and Murlis, 2005
A pay range is attached to each grade, with the maximum
of each range typically between 20 per cent and 50 per cent
above the minimum. Differentials between pay ranges are
typically about 20 per cent and there is usually an overlap
between ranges. This overlap provides some flexibility to
recognise that a highly experienced individual at the top ofA REVIEW OF GRADING AND PAY REFORM INITIATIVES 21
a range may be contributing more than someone who is still
in the learning curve portion of the next higher grade. The
pay ranges provide scope for progression, which is usually
related to performance, competence or contribution.
Narrow graded structures provide a framework for
managing relativities and for ensuring that jobs of equal
value are paid equally. Armstrong and Stephens (2005,
p.185) note that ‘in theory they are easy to manage because
the large number of grades enable fine distinctions to be
made between different levels of responsibility’. They also
help to define career progression and staff may favour them
because they offer opportunities for increasing pay through
upgrading.
However, the disadvantages from an organisation’s
perspective can be significant. If there are too many grades
there may be constant pressure for upgrading leading in
some cases to unjustified regrading (‘grade drift’). They can
represent an extended hierarchy that may no longer be
appropriate in de-layered, team and process-based
organisations. Lastly, they reinforce the importance of
promotion as a means of progression, which may run
counter to the needs of organisations to be more flexible
and also the needs of individuals, who may as a result forgo
opportunities for developmental lateral moves.
3.5.2 Pay spines
Pay spines are broadly similar to narrow graded structures
and are found in the public sector or in organisations that
have adopted a public sector approach to reward
management. Pay spines consist of a series of incremental
pay points aligned to job grades. Typically pay spine
increments represent a salary increase of 2.5 to 3 per cent.
Increases may be standardised from the top to the bottom
of the scale or may vary at different levels, sometimes
widening at the top. Progression through the scale is based
on service, although some organisations make provisions
for accelerating increments or providing additional22 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
increments above the top of the scale to reward high
performing staff.
The advantages of the system are that it is easy to
manage and, because pay progression is linked to service,
it is not based on managerial judgment. For this reason the
system is favoured by trade unions, many employees and
some managers. Due to this potentially high level of
consensus in relation to the approach it can be difficult to
move away from, despite a number of important
disadvantages.
Relating pay almost entirely to service means that
people are rewarded for ‘being there’ and not for the value
of their contribution. Secondly, in an environment of low
staff turnover, the approach can be expensive with many
staff reaching the top of the scale. Furthermore, reaching
the top of the scale can result in staff frustration, as further
increments are only available if they are promoted.
3.5.3 Broadbanded structures
Broadbanding means that the number of grades is
compressed into a relatively small number, perhaps as few
as four or five, in which pay is managed more flexibly than
in a conventional graded structure (Figure 3.2).
Broadbanding became popular during the 1990s, gaining
credence as the grade and pay structure which supposedly
contributed to the success of companies like General
Electric. It was regarded as the ideal structure for modern
de-layered organisations, with an emphasis on individual
career development, flexible roles and competence growth
(Armstrong and Stephens, 2005).
As overall pay opportunities are likely to be the same as
under a previous system, the range of pay for each grade,
or band as they are more commonly referred to, will be far
more extensive than under a narrow graded system. The
difference between the maximum and minimum salary
available within a band may be as high as 100 per cent.A REVIEW OF GRADING AND PAY REFORM INITIATIVES 23
Figure 3.2: The Conversion of a Traditional Graded
Structure into a Broadbanded one
Source: Armstrong and Brown, 2001
When first introduced, the broadband concept allowed
for unlimited progression within bands. However, many
organisations found this lack of structure was
unmanageable and that some mechanism had to exist for
controlling progression. This has resulted in reference
points, based on job evaluation or aligned to market rates,
being inserted into bands. Ranges of pay or ‘zones’ may also
be built around reference points.
The primary reason organisations adopt broadbanded
pay structures is to acquire greater flexibility. Individual
rates of pay may be adapted more readily to changes in the
market rate than under a traditional multiple grade
structure. Similarly, it is possible to reward lateral career
development or superior performance. In this way,24 A REVIEW OF THE CIVIL SERVICE GRADING AND PAY SYSTEM
broadbanding provides a role-specific and performance-
related focus on reward.
However, broadbanded systems also have considerable
disadvantages. For employees, a broadbanded structure may
unwarrantedly raise expectations of pay opportunities. Staff may
also be concerned by the apparent lack of structure and believe that
decisions are not made consistently. For employers, despite initial
hopes to the contrary, broadbanded structures tend to be more
difficult to manage than narrow-graded structures. They make
considerable demands on line managers and HR personnel in
respect of performance management and communication, though it
could be argued that these are precisely the tasks which staff in
these positions should be fulfilling.
In addition there is a concern that broadbanding can
lead to equal pay problems. The broader pay ranges within
bands mean that they include jobs of widely different values
or sizes, which could result in discrimination. In addition,
research has shown that in transferring from a traditional
pay structure, women may be assimilated in the lower
regions of bands and find it very difficult to catch up with
their male colleagues who, perhaps due to longer, unbroken
service, may be assimilated in the upper regions of bands
(Armstrong and Murlis, 2005, p.200).
While procedural shortcomings can be overcome if the
system is implemented and communicated in an effective
manner, there are further difficulties with the concept in
principle. The introduction of bands within bands (‘zones’)
in order to make the system more manageable prompts the
query, what’s the difference between a broadbanded
structure with four bands each with three zones and a
conventional graded structure with twelve grades. The
answer from advocates of broadbanding is that zones
operate more flexibly with regard to grading, pay
progression and reaction to market pressures than narrow-
graded structures. However, whether this merits the
considerable effort involved in reform will depend on
individual organisations.A REVIEW OF GRADING AND PAY REFORM INITIATIVES 25 3.5.4 Broad graded structures Broad graded structures are closer in concept to narrow graded structures, even though in many organisations they evolved as a response to the failings of broadbanded structures. Broad grading implies perhaps eight to ten grades with associated pay ranges, managed in the same way as a narrow graded structure. However, with a somewhat smaller number of grades than pertains with a narrow graded structure, and provided that these grades are well defined, broad graded structures are alleged to alleviate the problem of grade drift associated with narrow graded structures. However, the increased width of grades can lead to pay drift, with employees expecting to reach the upper pay limit of a grade. In order to counterbalance this, some organisations have incorporated threshold controls (pay can not increase without achieving a defined level of competence) and zone controls (dividing the grades into segments or zones). 3.5.5 Career family structures As the name implies, career family structures involve the grouping together of jobs from similar functions or occupations (for example, HR, IT, finance, operations, support services) into ‘families’. These jobs are related through the activities carried out and the basic knowledge and skills required, but differ in respect of the levels of responsibility, competence, knowledge or skills needed. Reflecting this, career structures have typically between six and eight levels (Figure 3.3).
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